Omaha World Herald, April 17, 2007

The nation's most powerful lobbying organization just put Nebraska in its sights. The AARP is flooding newspapers and radio waves with advertisements in an effort to persuade Sen. Nelson to open the door to price controls on prescription drugs.

Specifically, the ads are urging the Senate to pass legislation that would allow the federal government to negotiate drug prices under Medicare Part D.

Similar legislation has already passed the House of Representatives.

Unfortunately, if AARP succeeds in persuading Sen. Nelson, and 10 other "swing vote" senators, it will cause irreparable damage to our nation's health care system -- damage that would affect everyone, not just our nation's seniors.

That's because government "negotiations" invariably lead to price controls.

And if the federal government sets prices -- or institutes a formulary that determines which medicines can be purchased -- seniors would likely lose access to the life-saving medicines they need.

Defenders of negotiations argue that the legislation does not specifically impose price controls or a single government formulary. This is true. But the writing is on the wall.

Once the "non-interference" clause is removed, and the government is allowed to meddle in negotiations -- which have been handled remarkably well thus far by the private sector -- it will be only a matter of tiny legislative tweaks before we see full-blown price controls.

For evidence of this fact, just look at the Veterans Affairs benefit, which is what proponents point to as a model of how Medicare negotiations should work.

The VA doesn't actually negotiate prices at all. It sets them. By law, drug companies must sell to the VA at a price that's 24 percent less than the non-Federal Average Manufacturer Price.

That's the definition of a price control.

Troublingly, advocates of VA-style "negotiations" either don't know -- or don't care --that the VA drug benefit is so dangerously limited that it

appears to lower the life expectancy of veterans.

Only 19 percent of drugs approved by the FDA since 2000 are listed on the VA formulary, and only 38 percent of drugs approved in the 1990s are listed.

Sadly, many of the unlisted drugs are newer medicines that would be more effective in treating certain diseases for veterans.

The problem with price controls is that they ignore the costly process whereby drugs are developed. Behind each pill's price tag is time and money that went toward research and development. R&D is a huge investment -- on average, nearly $1 billion per drug.

Most drugs fail in trial after years of testing. They never even make it to the hospital or pharmacy. The market price for drugs reflects these risky investments. Government-mandated prices do not. Quite literally, the difference is a matter of life and death.

University of Connecticut Center for Healthcare and Insurance Studies researchers recently found that since 1960, government interference in drug pricing caused $188 billion in lost R&D spending. That money would have gone to develop new, perhaps life-saving, medicines. According to the study, these "lost" medicines could have saved 140 million life years.

Currently, the government is barred from negotiating prices. However, the researchers predict that if the government interferes with drug pricing under Medicare, R&D spending will drop by almost 40% -- producing a loss of

277 million life years.

And we would never know if this lost research could have generated a cure for cancer or AIDS.

Despite what the AARP ads say, it isn't even clear that government negotiations would save money.

The Centers for Medicare and Medicaid Services (CMS) noted that "both [the Congressional Budget Office] and the CMS actuaries have estimated that a centralized drug benefit, with government price negotiation, would not yield lower drug costs compared to current law. Moreover, government controls could restrict access to needed medicines."

Further, price controls could actually increase costs for taxpayers. The CBO has estimated that negotiations would increase the Medicare drug bill's costs by $18 billion between 2003 and 2012.

In stark contrast to price controls, competition drives prices down and gives consumers more choices. Allowing dozens of companies to compete for seniors' business gives those companies an important incentive to negotiate better prices for the top drugs. Beneficiaries can pick and choose the plan best suited to their needs.

That's how the Medicare drug benefit is currently structured, and it would be a mistake to change it -- no matter how much money AARP spends trying to persuade Nebraska voters otherwise.

Sally C. Pipes is President & CEO of the Pacific Research Institute and author of "Miracle Cure: How to Solve America's Health-Care Crisis and Why Canada Isn't the Answer."